Facts:
Sequestration is set to cut $1.2T over the next decade (cut explained) while annual deficits are currently running at roughly that amount.
Our national debt is around $16T
Unfunded mandates in Medicare, SS and federal pensions total in the neighborhood of $86T over that same decade.
The Fed is monetizing our debt through the policy of Quantitative Easing (printing, figuratively, money to buy debt, T-Bills, from the government) and purchasing toxic assets at the clip of $40B per month from Fannie and Freddie. For video of Federal Reserve Chairman Ben Bernanke explaining the policy with accompanying article explaining the practical implications of the policy click here.
Our bond rating has been downgraded and may be again.
Knowing these things… Does anyone think either party is serious in the slightest about addressing our long term financial brick wall… the one we’re flying toward at warp speed… that we’ll hit AFTER going over the cliff? Me neither. Lest anyone think I’m blaming a single party, I am not. George Bush and the Congressional Republicans started an absurd spending spree that candidate Obama called (correctly) “irresponsible” and “unpatriotic“. Thing is, after getting elected he and the Congressional Democrats doubled down and hit the gas. Now we have both parties unwilling to compromise. They’ve both played an optics game that ignores reality and paints them into corners. The GOP offers deduction reform to Obama that would generate the same revenue that rate increases would provide; Obama declines and sends his press secretary out to say the GOP isn’t serious. Obama offers raising his tax increase floor. The GOP declines. Is either side serious? We know the most likely outcome here. We go over the cliff, the parties will posture for a while then work out an agreement that pretty much puts us in the same place we were in prior to the sequestration ordeal and claim victory. Spending will resume, the debt ceiling raised and income tax rates will be raised on those making some number north of $400K per year.
Our problem: We are spending too much money.
Our solution: Revenue most go up and spending must go down.
How? It is going to suck and ain’t no one gonna be happy. Current leadership in Congress and the Oval Office has demonstrated no interest in addressing the problem; they are behaving cowardly.
Tax reform is needed. We need more tax payers. We need to gut the tax code and eliminate perverse incentives, deductions for politically preferred industries and the marriage penalty. We can drop rates on that wider base of tax-payers to create a larger economic tax base through growth that will increase revenue. As a practical matter politics will make this very hard and as hard as it will be, it will only get harder the longer we wait. Too often we do not act until the option not to act has been eliminated.
Entitlements must be reformed. Medicare and SS need to have the benefits collection age bumped (grandfather in those close to collection – say 55 and older) and a means test applied.
We must reform the bureaucratic system. It is bloated, duplicative (and often greater), inefficient and an impediment to individuals and businesses. The power of the bureaucracy to prevent reform of the bureaucracy is something to be greatly concerned about. One thing history teaches us is that great civilizations acquire bloated bureaucracies that demand to be appeased (see China, the Ottoman Empire, Russia, Soviet Union etc). They are reformed only with great pain and usually by despots, see Mao, Kemal Ataturk, Peter the Great and Putin. We can reform ours now or we can wait for it to become so onerous of a burden that we sacrifice our Republic in order to cede sufficient power to “great reformer” to reform it. The latter is a much less attractive option, see Mao, Kemal Ataturk, Peter the Great and Putin.
Our bureaucracy is suffocating the middle class and furthering their dependence on government at an accelerating rate making them smaller as the bureaucracy grows larger. Too often reform is opposed on the basis that it will harm the little guy. History teaches us another lesson; the rich and powerful tend to stay on top even after radical change comes to a society; they tend to be invested in preserving the mechanisms that create and keep the small in place – not help them. Don’t be fooled by claims that the government must be grown to protect the little guy from the big guy…. especially when the big guy is pedaling the claim.
Let me be clear. Unless Republicans are willing to increase taxes on the rich, who, let’s face it, are already allowed to keep way too much of your money, we will face consequences of disastrous proportions. Firefighters, police officers, teachers and day care workers will be out of a job. Millions will go hungry. Crime will escalate to distopian proportions. Within weeks our satellites will begin hurtling from the sky. They will land on the few remaining schools and day care centers crushing our children. They will land on power plants, factories and juice bars. These impacts will create firestorms that will grow and as these storms grow and consume cities, states and entire regions they will merge causing predetermined and automated protocols to be triggered launching our nuclear arsenal. The international retaliation will be certain, swift and will destroy the planet. All this because of Republican intransigence and their stubborn determination to protect the rich and greedy.
Problem is, President Obama and his Chief of Staff Lew pushed for and got the sequestration legislation passed as noted by Bob Woodward - no friend of the right. Problem is, those first responders, teachers etc are not federal employees. Problem is, the President decides where to impose cuts in spending not Congress. Problem is, the “cuts” actually amount to about $44B with the other $41B being cuts IN GROWTH of spending. Problem is, in perspective $44B is small compared to the $224B we’ll spend on debt interest. Problem is, $44B is small compared to the $845B deficit and downright miniscule when compared to the $3553B President Obama plans to spend in 2013.
